ECHNICAL VALUATION FOR A U.S. CENTRAL BANK IGITAL CURRENCY YSTEM

TECHNICAL EVALUATION FOR A U.S. CENTRAL BANK DIGITAL CURRENCY SYSTEM

SEPTEMBER 2022

TECHNICAL EVALUATION FOR A U.S. CBDC SYSTEM

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About this Document

Executive Order (EO) 14067 directed the Office of Science and Technology Policy to produce a technical evaluation to facilitate and support the introduction of a Central Bank Digital Currency (CBDC) system in the United States (U.S.), should one be proposed. This report lays out the policy objectives for a U.S. CBDC system, and proceeds to analyze technical design choices for a U.S. CBDC system with respect to those policy objectives. This report also estimates the feasibility of building a U.S. CBDC minimum viable product and assesses how a U.S. CBDC system may impact Federal processes. This report makes recommendations on how to prepare the U.S. Government for a U.S. CBDC system, but it does not make an assessment or recommendation about whether a U.S. CBDC system should be pursued.

About the Office of Science and Technology Policy

The Office of Science and Technology Policy (OSTP) was established by the National Science and Technology Policy, Organization, and Priorities Act of 1976 to provide the President and others within the Executive Office of the President with advice on the scientific, engineering, and technological aspects of the economy, national security, health, foreign relations, the environment, and the technological recovery and use of resources, among other topics. OSTP leads interagency science and technology policy coordination efforts, assists the Office of Management and Budget with an annual review and analysis of Federal research and development in budgets, and serves as a source of scientific and technological analysis and judgment for the President with respect to major policies, plans, and programs of the Federal government. More information is available at .

About the Interagency Process

The creation of this report was coordinated through an interagency process led by the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy, as described in Section 3 of EO 14067. A list of departments and agencies involved in this interagency process can be found in Appendix B.

Copyright Information

This document is a work of the United States Government, and this document is in the public domain (see 17 U.S.C. ?105).

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TECHNICAL EVALUATION FOR A U.S. CBDC SYSTEM

Contents

Introduction................................................................................................................................... 5 Policy Objectives for a U.S. CBDC System ................................................................................ 7 Technical Design Choices for a U.S. CBDC System ................................................................ 11

Participants ................................................................................................................................ 12 Transport Layer ..................................................................................................................... 12 Interoperability ...................................................................................................................... 15

Governance................................................................................................................................ 16 Permissioning ........................................................................................................................ 16 Access Tiering ....................................................................................................................... 18 Identity Privacy...................................................................................................................... 20 Remediation........................................................................................................................... 22

Security...................................................................................................................................... 24 Cryptography ......................................................................................................................... 24 Secure Hardware.................................................................................................................... 26

Transactions .............................................................................................................................. 27 Signatures .............................................................................................................................. 27 Transaction Privacy ............................................................................................................... 29 Offline Transactions .............................................................................................................. 30 Transaction Programmability ................................................................................................ 32

Data ........................................................................................................................................... 33 Data Model ............................................................................................................................ 33 Ledger History ....................................................................................................................... 34

Adjustments............................................................................................................................... 36 Fungibility ............................................................................................................................. 36 Holding Limits....................................................................................................................... 38 Adjustments on Transactions................................................................................................. 39 Adjustments on Balances....................................................................................................... 40

Feasibility and Resources for a U.S. CBDC System Minimum Viable Product ................... 41 Brief Survey of Relevant Experimentation ............................................................................... 41 Public Sector.......................................................................................................................... 41 Private Sector......................................................................................................................... 42

TECHNICAL EVALUATION FOR A U.S. CBDC SYSTEM

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Estimating Resources Required Based on Sets of Hypothetical CBDC Design Choices ......... 42 Example Set #1: Minimally Complex ................................................................................... 43 Example Set #2: More Complex Focusing on Broader Participation ................................... 44 Example Set #3: More Complex Focusing on Programmability, Privacy, and Inclusion..... 44

Impact of a U.S. CBDC System on Federal Processes............................................................. 46 Cybersecurity and Privacy ........................................................................................................ 46 Customer Experience ................................................................................................................ 47 Social Safety Net Programs....................................................................................................... 48

Recommendations on Preparing for a U.S. CBDC System..................................................... 50 Advance Technical Work Related to Digital Assets ................................................................. 50 Continue Digital Assets Research and Experimentation Within the Federal Reserve.............. 50 Establish a Digital Assets R&D Agenda................................................................................... 50 Scale Up Tech Capacity Across the Federal Government ........................................................ 51

Appendix A: Digital Services Best Practices ............................................................................ 53 Open Source .............................................................................................................................. 53 Modern Technology Stack ........................................................................................................ 54 Agile Development ................................................................................................................... 54 Team Structure .......................................................................................................................... 55

Appendix B: Interagency Process.............................................................................................. 58

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TECHNICAL EVALUATION FOR A U.S. CBDC SYSTEM

Introduction

A Central Bank Digital Currency (CBDC) is a digital form of a country's sovereign currency.1 If the United States issued a CBDC, this new type of central bank money may provide a range of benefits for American consumers, investors, and businesses. For example, a U.S. CBDC might enable transactions that are more efficient and less expensive, particularly for cross-border funds transfers. However, there are also potential risks to consider. A U.S. CBDC might affect everything ranging from the stability of the financial system to the protection of sensitive data. Recognizing these potential upsides and downsides, the Biden-Harris Administration is committed to further exploring the implications of, and options for, issuing a CBDC.

On March 9, 2022, President Biden signed Executive Order (EO) 14067, Ensuring Responsible Development of Digital Assets, placing the highest urgency on research and development efforts into the potential design and deployment options of a U.S. Central Bank Digital Currency (CBDC).2 EO 14067 further directed the Federal government to "prioritize timely assessments of potential benefits and risks under various designs to ensure that the United States remains a leader in the international financial system." To help advance this directive, Section 5(b)(ii) of EO 14067 ordered the Director of the Office of Science and Technology Policy (OSTP) and the Chief Technology Officer of the United States ? in consultation with the Secretary of the Treasury, the Chair of the Federal Reserve, and the heads of other relevant agencies ? to submit to the President a technical evaluation for a U.S. CBDC system, should one be proposed.

This report begins by laying out the policy objectives for a U.S. CBDC system, outlined in EO 14067 and developed in further detail through an interagency process led by the National Economic Council and the National Security Council. These policy objectives reflect the Administration's ongoing commitment to develop and use technology in accordance with democratic values. This report then analyzes the technical design choices for a U.S. CBDC system, focusing on how those choices would impact the policy objectives for a U.S. CBDC system. Next, this report estimates the feasibility of building a minimum viable product for a U.S. CBDC system, based on hypothetical combinations of technical design choices. Finally, this report assesses how a U.S. CBDC system may impact Federal processes, focusing on cybersecurity and privacy, customer experience, and social safety net programs.

This report concludes by making recommendations on how to prepare the Federal government for a U.S. CBDC system, should one be pursued. It recommends that OSTP help advance technology related to CBDCs as part of the CBDC Working Group outlined in the Department of the Treasury's report on The Future of Money and Payments. It encourages the Federal Reserve to continue its research and experimentation on CBDC systems, while recommending that the National Science Foundation (NSF) and OSTP develop a National Digital Assets Research and Development (R&D) Agenda to help spur innovation that could support the Federal Reserve's

1 Other U.S. Government reports explain CBDCs in greater depth. See, e.g., The Future of Money and Payments. (Sep. 2022). Department of the Treasury; and Money and Payments: The US Dollar in the Age of Digital Transformation. (Jan. 2022). The Federal Reserve. 2 Executive Order 14067: Ensuring Responsible Development of Digital Assets. (Mar. 2022). Federal Register.

TECHNICAL EVALUATION FOR A U.S. CBDC SYSTEM

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